How much does an actuary cost? Is this reasonable?

We got a notice this week that our actuary (a one-man operation) was raising his hourly billing rate to $225. How does that compare to what other actuaries charge for DB plan work?

What is a typical billing rate at the big firms? tiny firms?

Separate question: Is an annual actuarial valuation report legally required? That seems to be the biggest part of his annual fee. Even if not legally required, are there any bad implications to not having one prepared?

Are actuarial valuations required? - yes/no. You are required to have an actuary sign the Schedule SB/MB every year. In order to do that, the actuary must prepare a valuation. Now, is he/she required to provide you with a valuation report? That depends on the clients needs. We have clients who need our battleship and others that just want an email stating how much they need to put in. My opinion is that technically the SB/MB is the valuation report and that is all that is required, but it is most likely not sufficient for most clients.

You also have actuarial standards that drive actuarial communications, so some actuaries take the position that if they issue any reports, it must satisify certain requirements and therefore a simple letter or email would not be sufficient.

As far as billing rates I would say $150 - $350 depending on experience is certainly reasonable. You can get it cheaper, but you get what you pay for... pay me now or pay me later. The actuaries with the nation firms can have billing rates over $500.

Since you said "your actuary" I assume you are subbing out your db clients to someone who simply signs the valuations. Based on my experience, this is almost always "you get what you pay for". I suggest that just like when buying term life insurance and banking the savings, if you go cheap on "your actuary", make sure you put your savings into your E&O coverage.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

The actuary calls us each year and tells us what is the range of contributions. We pick a number in the range and prepare to pay it. A few weeks later, usually after we have already made the contribution, the actuarial valuation report shows up. I open it to confirm that the range he quoted over the phone is in the report and then it commences to gather dust sitting alongside all the previous reports from years gone by.

The fee for this report can be in the neighborhood of half of the entire year's fee. Maybe some companies need/use a report, but it seems like a no-brainer in our case just to cancel its publication. I don't suppose we'd see a 50% reduction in actuarial fees cuz he still has to spend time doing the calculations.

Are there any plan sponsors out there that can respond? Anybody done this? Any regrets?

I second Effen's comments. That said, it always true that the customer has the right to consider other vendors. Feel free to consider. However, don't get hung up on the hourly billing rate. What counts (primarily) is: value. As customer, you are entitled to judge value on any basis you choose (we call that free enterprise), but be sure you ask your actuary what he/she thinks the basis is. If you want to consider other vendors, that is only one of the many questions you will ask.

I'm a retirement actuary. Nothing about my comments or advice is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, certainly not all the time, it might be reasonable to interpret my comments as actuarial advice.

The actuary calls us each year and tells us what is the range of contributions. We pick a number in the range and prepare to pay it. A few weeks later, usually after we have already made the contribution, the actuarial valuation report shows up. I open it to confirm that the range he quoted over the phone is in the report and then it commences to gather dust sitting alongside all the previous reports from years gone by.

The fee for this report can be in the neighborhood of half of the entire year's fee. Maybe some companies need/use a report, but it seems like a no-brainer in our case just to cancel its publication. I don't suppose we'd see a 50% reduction in actuarial fees cuz he still has to spend time doing the calculations.

Are there any plan sponsors out there that can respond? Anybody done this? Any regrets?

Well, you are engaging a professional, who must comply with a range of complex regulations, involving finance, accounting, law, employee benefit rights, as well as probability & statistics training. This professional is governed by federal standards, and if he / she belongs to any professional organizations, is also governed by rules of conduct.

There are published minimum standards for any actuarial communication, intended to document the reasonableness of assumptions and methods used. These standards include some of the content of that actuarial report you receive.

Since you said "your actuary" I assume you are subbing out your db clients to someone who simply signs the valuations

Sorry, looks like I made a bad assumption. I thought you were a service provider subbing out the work and it turns out you are a plan sponsor hiring an actuary.

I think David's and SoCal's comments are on point. If you are unhappy for any reason, there are lots of options. However, if your sole criteria is price, you will most likely get what you pay for. Pension plans involve a lot of complex calculations, even if the results are fairly simple. You want to make sure it is being done correctly.

Maybe ask your attorney or accountant for a recommendation of someone who can look over your actuaries work and give you an opinion. Some actuaries will do this as a professional courtesy. Referrals from your other professionals are probably the most valuable. Ask around your peer group and see who they use and what they are paying.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

Not inordinately concerned with price, just trying to ensure we're under the fat part of the bell curve with regard to actuary billing rates. (It sounds like we are.) We don't have any concerns about the accuracy of his results etc.

With regard to the actuarial valuation report, we're not doing anything with it, so am wondering why we should even receive, and pay for, it unless it is legally required. Or maybe the solution is read it (ugh) and see if there's something in there of value to us.

Having worked as an actuary in So Cal, I can tell you:
1. The price sounds reasonable.
2. Most actuaries who perform small plan (<100 participants) valuations work from a fixed fee schedule (with or without adjustments for extra services required). Actuaries for larger plans tend to charge on a time and charges method, but sponsors of large plans don't typically one man operations, but prefer firms that have deep pockets, E&O insurance, peer review, etc.
3. An actuarial report is a necessity if you need to defend your deductions, change to a new actuary, justify your funding policy (and methods and assumptions) to a board of directors or senior management, etc.